Jessica covers Australia's technology start-up scene,
writing on breaking news and trends in entrepreneurialism, media and
marketing. She was previously named Australia's best New IT
Journalist for 2011.

How to set up shop online

When Jamie Jackson set up his members-only sale website OzSale.com.au in 2007, he recruited a few mates and pounded the pavements to promote his venture.

“We printed 10,000 T-shirts and 50,000 flyers,” Jackson says. “We pitched ourselves in different areas of Sydney and we stood there for weeks handing out vouchers and T-shirts. We went through a lot of running shoes.”

After about four months, the site had about 10,000 members and Jackson felt pretty chuffed. However, looking back, he realises how misguided his marketing efforts were. “In hindsight, we should have just said, ‘here’s $500 for Google’. That would get you 1000 members [immediately]. [Since then] search marketing has been instrumental to our growth.”

Despite beginning with a ham-fisted membership-acquisition strategy, OzSale now ranks in the top 10 Australian online retail ventures by average monthly visitor numbers (see table). In 2010-11, OzSale recorded more than $70 million in revenue, up from $20.7 million in 2010-09, which ranked it sixth on the BRW Fast Starters.

MOST POPULAR AUSTRALIAN WEB RETAILERS

Website

Unique visitors (000)

eBay

5849

Woolworths

1876

BIG W

1137

Catch of the Day

1058

JB Hi-Fi

1030

DealsDirect.com.au

975

Kmart Australia

873

LivingSocial

871

Yahoo!7 Spreets

846

Ozsale.com.au

834

Source: Nielsen NetView

A few years ago, online retail was a forgiving sector and new players could afford to make mistakes. These days, the sector is booming but increased competition means budding online mall moguls need to get it right.

BRW spoke to successful online retailers to find out what they got wrong so you don’t have to.

There’s a lot at stake. Research from consultancy Frost & Sullivan, in conjunction with PwC, expects online sales to reach $13.6 billion in 2011. Of this amount, $6 billion will go offshore to foreign retailers. “Online shopping, both locally and offshore, is expected to grow at least twice as fast as compared to the total retail market in Australia over the next four years,” senior research manager Phil Harpur says.

Smartphones and tablet devices were identified as key drivers of growth in online retail sales over past 12 months as more consumers buy while they are on the move. PwC expects one in four Australians to own a tablet by 2015.

In addition, a survey by customer experience software provider RightNow shows that 41 per cent of respondents prefer to buy products and services online rather than from physical stores or over the phone. The same survey found that 24 per cent of social media users had bought a product after reading comments about it on social media – of those, 77 per cent made their purchase online.

While there’s a relatively straight forward formula to setting up an online store (see graphic), easily made errors can impede success.

Of course, the first ingredient for an online retail store is a website. Some entrepreneurs with a technical background build them inhouse, but many engage the services of a web developer. Lucas McEntee and Jason Littlewood hired a web developer to build their consumer electronics retail website, Ohki.

The duo weren’t satisfied with the finished product and have since had their website rebuilt. McEntee recommends strict due diligence and investigation of previous projects to ensure a potential developer can produce what they promise.

Jonathon Green was behind the build of Eljo, a rival consumer electronics and whitegoods retailer. His co-founder, Elliot Ramler, says since then, the pair have been visualising their dream website. While the first version cost about $200 to build, the refresh, which will be unveiled in soon, has cost about $40,000.

“If we had the capital to start with, we would have built it on day one,” Ramler says.

A warehouse to store stock is necessary but don’t start too big too soon. Most founders have traded up. David Mills of Mills International Trading began storing stock on his patio but five years later has a 10,000 square metre facility in Seven Hills in Western Sydney.

About 85 per cent of Mills’ revenue comes from sales on eBay but he has also established his own website this year, AGR Machinery, for the sale of exclusively manufactured chainsaws, generators, jackhammers and the like.

Moving into a larger warehouse was almost Mills’ undoing. His advice to new entrepreneurs is to control stock with software. “I wish I had have thought of this earlier,” he says. “I ended up with a warehouse you couldn’t walk in.”

The logistics behind warehousing and order fulfilment is a key concern. If it takes 10 days to send a customer their order, “they’re never going to come back”, Ohki’s McEntee says.

“They’re happy if it’s delivered within five to seven days. If we can get it to them in two to three days, they’re absolutely over the moon.”

There are no rules on how much stock to buy in the beginning. Ozsale’s initial outlay on clothing was about $1 million. The Eljo team were still university students when they started and bought $15,000 worth of digital music players to get their store up and running. Ohki has its own brand of televisions manufactured in China and at first bought about 700 units. In addition to its branded products, Ohki resells other brands’ electronics that can be found in bricks and mortar retailers.

There’s also suggestions that traditional retailers put pressure on the brands not to supply to the competition online. “We continually have meetings with vendors and suppliers and consistently have to show them why it’s a good idea to back a business like this,” McEntee says.

One option that outsources much of the hassle behind warehousing, fulfilment logistics and how much stock to buy is having a drop-ship arrangement. “We didn’t buy any stock,” The Storehouse founder Andrew Yang says. “With a lot of our suppliers we have built systems that are integrated with their warehouse and ordering.”

The Storehouse stocks consumer electronics, with a particular focus on coffee machines.

Once the “back-end” of the online retail store is sorted, the next step is to drive customers to the website. Yang’s big mistake was going too early with a print advertising campaign. “Print is very good for building a brand but we didn’t have the cash flow in place to help support the campaign,” he says. “We saw a good uplift [in sales] but it wasn’t enough to cover the cost of the campaign.”

Like most of the online retailers, Yang’s preferred marketing channel to push customers to his website is search engine optimisation and marketing using Google AdWords campaigns.

The Eljo team gets the best return on its marketing investment with shopping comparison sites. Similar to Google AdWords, these work on a pay-per-click basis, once a customer is directed to the Eljo site.

Many are using social media but the consensus is to avoid using platforms such as Facebook and Twitter as a megaphone, shouting about discounts. “We have a Facebook page that we use to promote VIP specials and give away prizes on a monthly basis,” Eljo’s Ramler says. “It’s really important with social media not to be throwing it down [your fan’s] throats like sale, sale, sale!”

Mills prefers to use loss leaders. He prices machinery such as chainsaws and brushcutters at or near cost to lure customers to his site. Does it work? “Well we just turned over just under $40 million [in 2010-11],” Mills says.

Constantly monitoring traffic to the website and optimising it to ensure visitors are actually buying is critical.

“You have to answer every question a customer has and have the lowest possible barriers to purchasing,” McEntee says.

The rivals agree. “The biggest reason we’re changing our website is to increase conversion rates,” Eljo’s Ramler says. “We knew [what we wanted from the new website] down to the size of the text, the colour of the buttons and how many steps in the payment process.”

The duo conducted a full audit on the user interface of their site and found even a feature such as the colour of the “add to cart” button might be a barrier to purchase. “It should not be red. Use yellow or green,” Ramler says.